Guardian

He came almost unannounced, but unfolded agenda that sent a message to the world. For four years, controversy has trailed almost every decision made under his leadership, yet he trudges on. CHIJIOKE NELSON x-rays Central Bank of Nigeria Governor (CBN), Mallam Sanusi Lamido Sanusi’s youth development initiative and other economic reforms.

NIGERIA, like most developing and underdeveloped nations of the world, is faced with numerous socio-economic challenges that include unemployment, poverty, insecurity and conflicts. Besides, the youths constitute a large proportion of societies in developing countries, with pressing health, education, economic, and social needs. But the Central Bank Governor, Mallam Sanusi Lamido Sanusi, at a lecture in Umuahia, Abia State, recently, noted that as at 2009, the United Nations estimated youth’s population to be 1.2 billion, or approximately 18 per cent of the world’s population, with about 64 per cent of African youths living in countries where at least one third of the population lives on less than $2 a day. Perhaps this situation could be more evident in Africa.

It is also observed that despite the critical place the youths occupy and their value in nation building, several African countries under invest in youth empowerment, thereby breeding an army that may be turned into unprofitable activities. Generally, the aggregate individual insecurity, which is negatively evident on financial, job, marital, economic and psychological or a sum of them, translates into overall insecurity in the society, in developing and underdeveloped economies today.

The youths, according to Sanusi, constitute not only a formidable demographic force, but also make up the next generation of parents, workers and leaders. Their well-being, therefore, has implications not only for their own lives, but also for the societies they will build and maintain. Meeting their needs is a crucial challenge, which calls for constant review of policies, re-assessment of priorities, commitment of adequate financial resources, and effective implementation of programmes. An efficient and equitable resource allocation and improved policy formulation and implementation can only be achieved with a better understanding of the needs of youths.

Youth Empowerment Initiative

Under Sanusi, the bank played active developmental roles and collaborated with relevant government agencies, development partners, companies and other private institutions to improve banks’ lending to the real sector (although this has met with several inhibiting factors); empower small scale entrepreneurs; create employment opportunities; alleviate poverty; promote youth entrepreneurship, among others. Those programmes and initiatives include:

EDCs

The CBN, recognising the gap in youth entrepreneurship and also in support of the government’s initiatives to grow the critical mass of youth entrepreneurs to take advantage of the opportunities in the economy, has established Entrepreneurship Development Centres (EDCs) in each of the six geopolitical zones. The CBN-supported EDCs are to develop entrepreneurship spirit in Nigerians and provide insight into the tools, techniques and framework for managing business enterprise, including production, marketing, personnel and finance; to develop skills of would-be-entrepreneurs to successfully start, expand, diversify and manage business enterprises as well as link them with financial institutions for accessing start-up capital, especially from the microfinance banks; and to generate employment opportunities for Nigerians in pursuance of the provision of the National Economic Empowerment and Development Strategy (NEEDS) and recently, Vision (2020).

Three existing EDCs trained 6,640 young entrepreneurs, counseled 38,636 in business management and created 1,586 new jobs in the 2012. A total of 157 graduates also accessed loans valued at N12.81 million to start their own businesses. Cumulatively, a total of 41,441 individuals were trained, 106,933 were counseled and 10,895 jobs were created since inception of the scheme.

CACS

The Commercial Agriculture Credit Scheme (CACS) was established to finance large ticket projects along the agricultural value chain in addition to the existing Agricultural Credit Guarantee Scheme (ACGS), which had been in successful operation since 1977. The scheme was administered at a single digit rate of nine per cent to beneficiaries. State governments, including the FCT, can access a maximum of N1 billion for on lending to farmers’ cooperatives or other areas of agricultural intervention. Since inception in 2009, the sum of N158.39 billion with respect to 203 projects made up of 175 private promoters and 28 state governments including the FCT has been released to 18 DMBs for onward lending to farmers.

Available information showed that 100,301 jobs were created by projects under CACS in 2012. A breakdown of the job creation showed that of the total jobs created, state governments and private projects created 37,721 and 62, 580 respectively.

NIRSAL

Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) introduced in 2010 following the partnership deal between the CBN, United Nations International Development Organisation (UNIDO) and Alliance for a Green Revolution in Africa (AGRA), it is an innovative financing mechanism developed to unlock access to bank financing for agriculture by de-risking the agricultural and financial value chains through the adoption of risk-sharing approaches to financing. It is a demand driven credit facility rather than the current supply driven funding and based on a value chain approach to lending as banks would be free to choose which part of the value chain they would be interested in lending to. The five major components of this programme are: Risk Sharing Facility (RSF), Insurance Component (IC), Technical Assistance Facility (TAF), Bank Incentive Mechanism (BIM) and Agricultural Bank Rating System (ABRS).

Refinancing/Restructuring of SME/Manufacturing Fund

A N200 billion Refinancing/Restructuring of SME/Manufacturing Fund was set aside from the N500 billion Critical Infrastructure Fund approved for refinancing/restructuring of SME/Manufacturing Fund in April 2010 to enable banks refinance and restructure their existing loan portfolio to SMEs and Manufacturing firms. The 15-year facility has a three-year moratorium with loan amounts ranging from N5 million (minimum) to N1 billion (maximum) to a single obligor at an interest rate of seven per cent yearly repayable quarterly.

Since inception, the projects funded under the scheme have generated 13,886 new direct and 971,247 indirect jobs. Also, 257 projects were resuscitated through refinancing under the Scheme with capacity utilisation of beneficiaries increasing from an average of 25.0 per cent pre-intervention to 36.0 per cent post-intervention.

PAIF

A N300 billion Power and Aviation Intervention Fund (PAIF) intervention fund was established by the CBN and managed by the Bank of Industry (BOI) with technical assistance from the African Finance Corporation. It was designed as part of the Quantitative Easing measure to address the paucity of long-term credit and acute power shortage in the country. As at end-December 2012, the sum of N33.58 billion was released to BOI for disbursement to DMBs for 13 projects- (N28.24 billion for 10 power projects and N5.33 billion for three airline projects in 2012.  The timely introduction of the scheme prevented the domestic airline industry in the country from imminent collapse. This ensured that those in their employ did not lose their jobs.

SMECGS

The N200 billion Small and Medium Scale Enterprises Guarantee Scheme (SMECGS) established by the CBN in 2010 was aimed at promoting access to credit by SMEs in Nigeria. The scheme provides guarantees on loans by banks to the sector in order to absorb the risk element that inhibit banks from lending to the real sector. The activities covered under the scheme include manufacturing and agricultural value chain; SMEs with assets not exceeding N300 million and labour force of 11 to 300 staff; private education institutions; and processing, packaging and distribution of primary products.

About 22 projects valued at N1.03 billion were guaranteed under the scheme in 2012 bringing the cumulative number of projects guaranteed under the scheme to 40 since inception resulting in increased employment of various skills.

Banking Reform

“The Nigerian banking sector witnessed dramatic growth post-consolidation. However, neither the industry nor the regulators were sufficiently prepared to sustain and monitor the sector’s explosive growth. Prevailing sentiment and economic orthodoxy all encouraged this rapid growth, creating a blind spot to the risks building up in the system.

Prior to the crisis, the sentiment in the industry was that the banking sector was sound and growth should be encouraged. The IMF endorsed the strength of the banking system to support this growth. However, this sentiment proved misplaced.

“The huge surge in capital availability occurred during the time when corporate governance standards at banks were extremely weak. In fact, failure in corporate governance at banks was indeed a principal factor contributing to the financial crisis. Consolidation created bigger banks but failed to overcome the fundamental weaknesses in corporate governance in many of these banks. As banks grew in size and complexity, bank boards often did not fulfil their function and were lulled into a sense of well-being by the apparent year-over- year growth in assets and profits. In hindsight, boards and executive management in some major banks were not equipped to run their institutions. The bank chairman/CEO often had an overbearing influence on the board, and some boards lacked independence.

“We have already published details of the extent of insider abuse in several of the banks. CEOs set up Special Purpose Vehicles to lend money to themselves for stock price manipulation or the purchase of estates all over the world. One bank borrowed money and purchased private jets, which we later discovered were registered in the name of the CEO’s son. In another bank the management set up 100 fake companies for the purpose of perpetrating fraud. A lot of the capital supposedly raised by these so called “mega banks” was fake capital financed from depositors’ funds. About 30 per cent of the share capital of Intercontinental Bank was purchased with customer deposits.”

CBN initiated a five-part programme to enhance the operations and quality of banks in Nigeria during the reforms. The programme consisted of industry remedial programmes to fix the key causes of the crisis, implementation of risk-based supervision, regulations and regulatory framework, enhanced provisions for consumer protection, and internal transformation of the regulator- CBN.

It was then clear that financial sector and overall economic success required the CBN and Nigeria to do a lot of heavy lifting in many policy areas. There was a realization that sustainable growth path can be achieved only through substantial and fundamental economic reform. This includes ensuring that physical and institutional infrastructure is of scale and quality required. It also calls for political will to act to reduce corruption and uphold the rule of law. During the most difficult days of the on-going banking reforms, I found comfort in these short words of the Roman Emperor and philosopher, king Marcus Aurelius: “Do what is right, not popular. Do what you do for others first, and for yourself second.”

Sanusi has, in several fora, said that Nigerian banks are now strong and able to withstand shocks and have returned to profitability. Throughout 2012 to date, the banks have been posting several billions of Naira in profit.

AMCON

The Asset Management Company of Nigeria AMCON, a brainchild of CBN under Sanusi’s leadership, was one of the strategies to mitigate the assessed systemic effects of the then looming banks’ failure, which was the consequence of lack of corporate governance and recklessness in the financial system. The emergence of AMCON raised controversy, with some seeing it as a waste of taxpayers’ fund. CBN said that the setting up of AMCON was devoid of taxpayers’ inputs. AMCON was set up to absorb bad bank loans in exchange for government bonds in order to rebuild lenders’ balance sheets after a $4 billion bailout in 2009. “I must point out that no other country around the world that experienced financial difficulty and used a strategy similar to ours. I must also point out that the allusions by people that taxpayers’ funds were solely used to set up AMCON is erroneous. It is a feat of innovation that needs to be recognised,” Deputy Governor, Financial Stability, Dr. Kingsley Moghalu, said.

Sanusi at the first National Risk Management conference, said  “Today, AMCON has bonds with a face value of N5.7 trillion, with CBN holding N3.6 trillion value. This was not the original intent, but also part of the risk management. Many banks that got early bonds, did so when interest rate was seven per cent and by the time we completed the capitalisation of the other banks, interest rate has moved up with about 500 to 600 basis points. This would have been huge erosion of the capital of those banks and that would have just thrown these banks back to where they were. So, CBN swapped the AMCOM bonds for Open Market Operations bills and other instruments that will not carry those market risks and we had N3.6 trillion out of N5.7 trillion. AMCON is expected to pay back N1.7 trillion by December this year or at least refinance it and N4 trillion next year.

“Now, CBN will refinance and restructure the N3.6 trillion bond it invested with a coupon of six per cent. By October 2014, AMCON’s N980 billion bond under series five will mature, which AMCON will pay with sinking fund and recoveries. Actually, after December this year, AMCON will be left with the Special Class bond with CBN only”.

Foreign Reserve

Also in the front burner in the last four years was the nation’s foreign reserve, which goes back and forth, though with marginal gains. Sanusi at the last Bankers’ Nite, said: “It is important not to be complacent and it is important also to recognise that there are dark clouds in the horizon and it is extremely important to start building and continue building the fiscal buffers, go into a period of strong restraints and serious fiscal restraints and consolidation. We must continue to build up the external reserves and protect the economy from external shocks to oil prices and focus on the strength and resilience of the banking system. Banks are not set up to invest in government bills alone, banks are not set up to use depositors’ funds to bet on the capital and real estate markets, banks are set up primarily to mobilise savings and move these savings into the real economy where real production, real jobs and real income are created.”

At the last count, Foreign Reserve has reportedly been subdued by the volatility in crude oil prices, weakened by $439 million to $48.418 billion as at May 28th. CBN’s report showed that the amount represented a decline by 0.9 per cent compared to the $48.857 billion it was at the beginning of the month.

Cashless Project

WITH the Central Bank of Nigeria (CBN) getting set for the next phase of the cash-less policy in the country, indications emerged that the apex financial institution might target the deployment of about 150,000 point of sales (PoS) terminals and ensure increase in the number of Automated Teller Machines (ATMs) in the country. But the target areas for the second phase of the pilot project for the cash-less economy initiative, which might take-off in July, will be Abia, Abuja, Anambra, Kano, Ogun and Rivers. The extended project may have been informed by the assessed success in Lagos pilot run, which overshoot its target of 40, 000 PoS terminals as of March 2013. “We exceeded that. We have over 150,000 PoS terminals now. The plan now is to double that and encourage players to deploy more ATMs in order to expand the initiative.” The source said the apex bank was also working to ensure that the challenges experienced in the first phase were mitigated in the second phase.

CBN has disclosed that the total value of electronic funds transfer in the country has risen to N80 billion per day, which was attributable to the introduction of the cash-less policy and an indication of growing acceptance of the policy by Nigerians amid its challenges. The Nigeria Interbank Settlement System (NIBSS) recorded over N20 billion daily transactions, while the Nigeria Electronic Funds Transfer (NEFT) conducts about N60 billion transactions daily. Both the value and volume of cash transactions executed through NIBSS and the Nigeria Electronic Funds Transfer have doubled when compared with the use of cheques.

The Chief Executive Officer of Electronic Payment Providers Association of Nigeria (E-PPAN), Mrs. Onajite Regha, said the number of PoS terminals so far deployed in the cash-less scheme has hit a record high, noting that the cash-less initiative was recording success and had continued to impact positively on the Nigerians. She however, lamented that the issue of connectivity of the PoS deployed remained a major challenge. “By the time we started the Cash-less Lagos scheme, the projection of the regulator was that by December, 2012, we would have recorded 40, 000 PoS terminal deployment.  But available data showed that we now have about 150, 000 PoS machines in Lagos. However, the question is: how many of the PoS are working? So, that is where I believe we need to work on. We need to increase better connectivity to these terminals to encourage the merchants and the consumers to use the devices for seamless payment transactions,” she said.

Interest Rate

Nigeria’s Monetary Policy Rate- the benchmark interest rate, sustained the plummeting investment and development profile of the country, even as it could not rank among the first 50 low interest rates in the world. Even in the continent, over 10 countries are ahead.

But the CBN boss, in his usual response, says that the institution cannot be stampeded into doing what is not right, pointing to infrastructure that will sustain monetary easing as lacking in the country.

Some analysts said: “The problem is that the regulators are focusing only on money supply (price stability), which is only one aspect of the macro-economic variables. Certain level of inflation is needed to drive economic activities. What is bad is high-level inflation. The monetary policy rate of the country and the growth projections are contradictory. If small-scale enterprises cannot get facilities at lower single digit rates, the development and growth projections are just mere talks.”

At the last count, respite still seems to be far for the nation’s economy as the Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, said the current Monetary Policy Rate would be raised further with 2015 election spending on the corner.

Sanusi, who gave the indication in an interview with CNBC Africa, noted that if government spendings were not curtailed, especially with the elections in 2015, the benefits of the expenditure curbs by the Minister of Finance would be fruitless and CBN may raise the benchmark interest rate.

Sanusi said: Frankly, if you look at what’s happening in Nigeria, the election has already started, one way or the other. Finance Minister, Ngozi Okonjo-Iweala, has curbed expenditure, but there will be probably more tightening if the politicians spend money.”

Presently, Nigeria’ inflation rate accelerated to 9.1 per cent in April from 8.6 per cent in the previous month, according to the National Bureau of Statistics, but has stayed under 10 per cent for four consecutive months, meeting the central bank’s target.

Accolades

He has earned himself a fame and popularity. The renowned global financial intelligence magazine, The Banker, published by the Financial Times, has conferred on him two awards. The TIME magazine also listed Sanusi in its TIMES 100 list of most influential people of 2011. He has been recognised with the global award for Central Bank Governor of the Year, as well as for Central Bank Governor of the Year for Africa in three successive years. At home, he has clinched the Silverbird Man of the Year also, among others.

Under Sanusi, the bank played active developmental roles and collaborated with relevant government agencies, development partners, companies and other private institutions to improve banks’ lending to the real sector (although this has met with several inhibiting factors); empower small scale entrepreneurs; create employment opportunities; alleviate poverty; promote youth entrepreneurship, among others.